Are all Expatriates Subject to IRS Exit Tax? An Introduction

Are all Expatriates Subject to IRS Exit Tax? An Introduction

Expatriates & US Exit Tax

US Expatriates & IRS Exit Tax: A common misconception is that the IRS subjects all expatriates to U.S. exit tax when they renounce or relinquish their U.S. person status,  but that is not true. In fact, when most individuals expatriate from the United States, they will not have to face an Exit Tax.

Generally, only Long-Term Residents and U.S. Citizens (aka Covered Expatriates) are even possibly subject to an exit tax.

For an expatriate to be subject to an exit Tax, they have to be a covered expatriate.

Which Expatriates are Subject to U.S. Tax?

Let’s go through the basics:

What is an Expatriate?

An expatriate is simply a person who resides outside of their country of citizenship.

For example, Michael is a U.S Citizen who resides full-time in Spain. Michael may or may not have a “formalized” status in Spain, but he is a citizen of the U.S. Therefore, Michael is considered an expatriate, since he is a U.S. Citizen who resides outside of the U.S.

Expatriation Tax

When a person tax the formal step of relinquishing, renouncing, or abandoning their US status, they are considered to have formally expatriated. As a result, they may become subject to an expatriation tax at exit.

As provided by the IRS:

“The expatriation tax provisions under Internal Revenue Code (IRC) sections 877 and 877A apply to U.S. citizens who have renounced their citizenship and long-term residents (as defined in IRC 877(e)) who have ended their U.S. resident status for federal tax purposes. Different rules apply according to the date upon which you expatriated.”

Who May be Subject to an Expatriation Tax?

For an Expatriate to be subject to an exit tax, they have to first fall into one of two categories:

  • U.S. Citizen
  • Long-Term Resident (LTR)

Is the U.S. Citizen or LTR “Covered”?

A U.S. Citizen or Legal Permanent Resident is considered a covered expatriate if they meet one of the three tests, and no exceptions apply.

Exit Tax Planning

Covered Expatriates should engage exit tax planning prior to expatriation. Some expatriates may be able to effective plan to reduce or eliminate any exit tax.

Interested in Expatriation from the U.S.?

Our firm specializes exclusively in international tax.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Recent Case Highlights

  • We represented a client in an 8-figure disclosure that spanned 7 countries.
  • We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
  • We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
  • We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
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How to Hire Experienced Offshore Counsel?

Generally, experienced attorneys in this field will have the following credentials/experience:

  • 20-years experience as a practicing attorney
  • Extensive litigation, high-stakes audit and trial experience
  • Board Certified Tax Law Specialist credential
  • Master’s of Tax Law (LL.M.)
  • Dually Licensed as an EA (Enrolled Agent) or CPA

Interested in Learning More about our Firm?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant.

We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.

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